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Financial Services Roundtable
May 28, 2004
Office of the Comptroller of the Currency
250 E Street, S.W.
Public Information Room
Mail Stop 1-5
Washington, D.C. 20219
Attention: Docket No. 04-09
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve
System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Attention: Docket No. R-1188
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Re: RIN 3064-AC81
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
Attention: Docket No. 2004-16
Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428
Re: 12 CFR Part 717
Re: Notice of Proposed Rulemaking on the Fair Credit Reporting
Medical Information Regulations
Dear Sir or Madam:
The Financial Services Roundtable (the “Roundtable”)1
appreciates the opportunity to comment on the proposed regulations
implementing section 411 of the Fair and Accurate Credit Transactions
Act of 2003 (“FACT Act”) issued by the Board of Governors of the Federal
Reserve System (the “Board”), the Office of the Comptroller of the
Currency (“OCC”), Office of Thrift Supervision (“OTS”), the Federal
Deposit Insurance Corporation (“FDIC”), and the National Credit Union
Administration (“NCUA”), (collectively, the “Agencies”).
Background
Section 411 of the FACT Act amends the Fair Credit Reporting Act (“FCRA”)
to provide that a creditor may not obtain or use medical information in
connection with any determination of a consumer's eligibility, or
continued eligibility, for credit, except as permitted by regulations.
The Agencies’ proposed regulations would grant limited exceptions to
allow creditors to obtain or use medical information in those
circumstances that the Agencies believe are necessary and appropriate in
connection with determinations of consumer eligibility for credit. The
regulations also establish when and how creditors would be permitted to
share medical information among affiliates.
The Roundtable generally supports the Agencies’ proposed regulations.
However, we believe there are some areas in the proposal that should be
reconsidered prior to issuing a final rule. Roundtable member companies
would like to offer the following recommendations, which we believe
would enhance this proposal.
• Additional clarification is necessary for the definition of
medical information, the exceptions to the general prohibition on
obtaining and using medical information for credit purposes, and the
examples illustrating the general rule and exceptions.
• The proposed exceptions have limited application and should be
extended to apply to all creditors who would otherwise be subject to
the prohibition on obtaining or using medical information.
• There should be a separate exception for debt cancellation contracts
(“DCC”) and debt suspension agreements (“DSA”).
• The rule of construction which provides a safe harbor for
unsolicited medical information is more favorable than creating a
separate exception to the prohibition.
• Consumer reports containing coded medical information should be
excluded from the definition of medical information.
• The Agencies should be allowed to draft regulations that are
enforced by the other Agencies.
• The FTC would retain enforcement authority despite the lack of
rulemaking power.
General comments about the definition of medical information and
exceptions
Roundtable member companies believe that the definition of medical
information needs further clarification. In particular, we believe that
the Agencies should clarify that "medical information" must "relate to"
or "pertain to" a specific consumer. For example, a database of
information relating to the repayment behavior of thousands of
consumers, none of whom is personally identifiable, should not be deemed
to be "medical information." If such information were "medical
information," creditors may have difficulty in utilizing such data even
for basic analytical purposes that have no bearing or impact on any
individual. We do not believe that this was the intent of Congress or
the Agencies, and we urge the Agencies to provide clarification on this
issue.
Roundtable members generally support the approach taken by the
Agencies in the proposed regulations to provide exceptions for financial
information, and to provide additional specific exceptions where the use
of any type of medical information is necessary or appropriate in
connection with an extension of credit. We support the three part test
that must be satisfied in order to qualify for the financial information
exception. However, we recommend adding a statement to the financial
information exception which indicates that the list of items medical
information is permitted to relate to (i.e., debts, expenses, income,
benefits collateral, or the purpose of the loan, including the use of
proceeds) is not exclusive. This would cover items, such as assets, that
may have been unintentionally omitted by the Agencies. We also recommend
adding a specific exception that would allow creditors to determine
whether a consumer has the mental capacity to enter into a valid
contract.
Roundtable member companies favor the use of examples to illustrate
the application of the proposed regulations. We support the statement in
the proposal that the examples are not exclusive and that compliance
with an example provides a safe harbor for compliance with these rules.
We recommend that the Agencies provide additional examples based on
comments received in order to provide additional clarification on the
proposed rules.
The proposed exceptions have limited application and should be
extended to apply to all creditors
The new section 604(g)(5)(A) of FCRA allows the Agencies to grant
exceptions that allow creditors to obtain or use medical information as
“necessary and appropriate to protect legitimate operational,
transactional, risk, consumer, and other needs (including actions
necessary for administrative verification purposes), consistent with the
intent of the statute to restrict the use of medical information for
inappropriate purposes.” The Agencies have requested comment on whether
or not the proposed exceptions adhere to this standard.
Roundtable members are concerned that the exceptions under section
411 are limited only to those entities in which the Agencies have
jurisdiction. Although each one of the Agencies have proposed almost
identical exceptions to the general prohibition against creditors
obtaining or using medical information in connection with credit
eligibility determinations, the Agencies’ regulations would only apply
to those creditors that the Agency views as being subject to its
jurisdiction. This would include those institutions chartered as a bank,
savings association or credit union and their affiliates.
As a result of the limitation of the proposed exceptions to banking
institutions and their affiliates, only a limited group of creditors
would be able to rely on the exceptions. The remaining creditors would
be prohibited from obtaining or using medical information in the credit
context. One group seriously affected by this limitation would be
nonaffiliated business partners of banks, such as mortgage brokers and
motor vehicle dealers. These entities would be unable to apply the
exceptions to their business practices and therefore would be
disadvantaged. Even banks and other covered institutions would be
negatively impacted because they often originate loans through, or
purchase loans from, these entities. Covered institutions often rely on
motor vehicle dealers and mortgage brokers to consider an applicant’s
capacity to contract and the risks involved with making a loan to an
individual. Under section 411, these non-covered entities would not be
allowed to consider an individual’s past, present or future physical,
mental, or behavioral heath or condition when reviewing an application
and determining the applicant’s capacity to enter into a contract.
Furthermore, the non-covered entities would not be allowed to account
for any medical debt delinquency that may affect the applicant’s credit
eligibility.
Roundtable members believe that proposed exceptions would also not
apply to medical providers since they are not under the Agencies’
jurisdiction. We believe this creates serious public policy issues. Not
having medical providers included in the scope of the regulations could
have a significant impact on how medical services are provided to
consumers, particularly consumers who have limited access to medical
insurance.
Medical professionals play a crucial role in making financing
available for medical transactions. Doctors often take into account a
patient’s ability to pay when offering treatment options. If the patient
does not have insurance, options may be limited absent the patient’s
ability to finance a procedure. Doctors do not make the credit
eligibility decision, but they are often responsible for informing
patients about their financing options and help to facilitate the
financing process with financial institutions. If the medical
professionals are unable to inform consumers about certain financing
options due to the constraints presented under section 411, patients may
make an uninformed decision and not choose to pursue the best available
treatment for their ailment. The patients harmed the most would be
consumers who do not have access to health insurance. Therefore, we
believe that doctors and medical providers should fall within the scope
of the regulations.
The Roundtable does not believe that the statute should limit the
exceptions under section 411 to institutions within the Agencies’
jurisdiction. We recommend that the statute be read as requiring the
Agencies to issue regulations that would apply to all creditors who
would otherwise be subject to the restriction against obtaining or using
medical information for credit determinations. We believe if Congress
intended to limit the regulations to those creditors in the Agencies’
jurisdiction, the statute would be more explicit. Congress has taken
this approach on previous occasions. For example, Section 604(g)(3)(C)
specifically provides an exception to the limitations on affiliate
sharing of medical information if the information is disclosed “as
otherwise determined to be necessary and appropriate, by regulation or
order . . . by the Commission, any Federal banking agency or the
National Credit Union Administration (with respect to any financial
institution subject to the jurisdiction of such agency or Administration
under paragraph (1), (2), or (3) of section 621(b)).” We urge the
Agencies to reconsider this proposal and extend the scope of these
regulations and exceptions to apply to all creditors. In particular, we
urge the Agencies to consider the serious public policy issues that are
created by excluding medical providers from the proposed rules.
Alternatively, if the Agencies choose not to apply the exceptions to
all creditors, we recommend that the Agencies at least include within
the scope of their final rules persons arranging credit on behalf of the
entities covered by the proposed rule. We believe it is inappropriate to
have stricter standards for arrangers of credit. An exception for a
creditor may become nullified by failing to provide the same exception
to an arranger of credit. For example, when financing medical related
transactions, a provider of medical services serves as a liaison between
the lender and the consumer. This provider has no role in determining
the consumer’s creditworthiness. The incidental use of medical
information is necessary to assist the consumer in obtaining financing.
We believe that failing to expand the scope of the exceptions to
arrangers of credit would significantly impact these transactions.
Therefore, we strongly urge the Agencies to ensure that the exceptions
include all entities that work with banking institutions, and their
affiliates, to provide financing for medical services and products.
There should there be a separate exception for debt cancellation
contract and debt suspension agreements
The agencies’ proposal requests comment on whether or not there
should there be a separate exception to permit creditors to obtain and
use medical information in connection with debt cancellation, debt
suspension, or credit insurance products, rather than issuing an
interpretation that obtaining information necessary to trigger coverage
under these products falls outside the determination of credit
eligibility.
Debt cancellation contracts (“DCC”) and debt suspension agreements (“DSA”)
often require consideration of medical information as a condition of
eligibility. Without an express regulatory exception, the use of medical
information in connection with offering a debt cancellation provision in
an extension of credit would be prohibited, which would have the effect
of prohibiting the product itself where consideration of medical
information is a necessary condition of offering the product. Roundtable
members recommend that such contracts and agreements be subject to a
specific exception to the prohibition on the use of medical information
rather than an interpretation of what constitutes “eligibility for
credit.”
We believe that the interpretation in the proposed regulation is too
narrow. The interpretation in the proposed regulation relates only to
the determination of whether a debt cancellation product has been
triggered by an event specified in the DCC or DSA. We believe that
medical information is an appropriate consideration in these
circumstances and also to determine whether an individual is eligible to
purchase a DCC or DSA or whether such a contract or agreement should be
reactivated.
Creditors that sell DCCs and DSAs often ask health questions as part
of the application process. In addition, medical information is
necessary for making a reactivation determination on a temporary
suspension of a DCC and DSA due to nonpayment. If the borrower answers
affirmatively to various health questions, the creditor may decide not
to offer the borrower the DCC or DSA. These questions allow creditors to
assess the amount of risk they wish to assume under the DCC or DSA. They
also permit the creditor to lower the price of the DCC or DSA if
appropriate. Without the ability to ask medical questions in connection
with a DCC or DSA, the price of such protection would be higher for all
borrowers.
The Roundtable believes that the proposed interpretation fails to
address all circumstances in which medical information may be considered
in connection with a DCC or DSA and creates some legal uncertainty about
the application of the regulation to these products. The proposed
interpretation creates legal uncertainty because the preamble to the
proposed rule provides no rationale for the interpretation. This permits
others to question, and perhaps even challenge, the basis for the
interpretation. More importantly, the proposed interpretation calls into
question the prevailing legal classification of DCCs and DSAs.
To address the issues above, we recommend that proposed section
__.30(d) be revised to include the following specific exception for DCCs
and DSAs:
(d)(1)(viii) To determine the eligibility for, the triggering of, or
the reactivation of a debt cancellation contract or debt suspension
agreement.
The exception eliminates the operational and legal uncertainties
associated with the proposed regulation. This proposed exception is also
consistent with the terms of section 411 of the FACT Act and the
legislative history of the Act. New Section 604(g)(5)(A) of the Fair
Credit Reporting Act expressly empowers the Agencies to except from the
prohibition on the use of medical information transactions that are
“necessary and appropriate to protect the legitimate operational,
transactional, risk, consumer, and other needs.” An exception for
determining the eligibility for, the triggering of, and the reactivation
of DCCs and DSAs is appropriate based on this authority. Additionally,
the House Report accompanying the FACT Act (House Report 108-263)
specifically states that the use of medical information in connection
with “credit-related debt cancellation agreements” is “necessary and
appropriate use of medical information”.
We support the rule of construction which provides a safe harbor
for unsolicited medical information
The Roundtable supports the rule of construction in section __.30(b),
which provides a safe harbor for a creditor who obtains medical
information without specifically requesting it and does not use the
information in connection with an extension of credit. The proposal
lists situations where a creditor would unintentionally receive medical
information. For instance, a customer may inform a loan officer that the
loan is for a medical treatment or a customer will list a hospital or
medical provider debt on a credit application.
We agree with the Agencies’ interpretation that a creditor in these
situations should not be deemed in violation of the prohibition on
obtaining and using medical information. Furthermore, we believe that
the matter of unsolicited medical information is better addressed as a
rule of construction rather than creating an exception to the general
prohibition on the use medical information.
However, we note that the proposed construction does not permit a
creditor to provide the consumer favorable treatment based on
unsolicited medical information. While the proposed rule does not
penalize a creditor for receiving unsolicited medical information, it
does not allow the creditor to grant credit that may not otherwise be
granted. For example, unsolicited medical information may factor
favorably in the credit decision in a situation where a consumer is
applying for a specific product that is only offered to people with
certain medical or behavioral problems. Therefore, we recommend amending
section __.30(b)(1)(ii) to read: “Does not use or uses that information
favorably in determining whether to extend or continue to extend credit
to the consumer and the terms on which credit is offered or continued.”
Consumer reports containing coded medical information should be
excluded from the definition of medical information
The Agencies have requested comment on how to treat the receipt of
consumer reports containing coded medical information in accordance with
FCRA section 604(g)(1)(C). We recommend excluding consumer reports
containing coded medical information from the definition of “medical
information”. We believe that it is reasonable to conclude that
Congress, by providing the coding option to consumer reporting agencies,
did not intend that such information to be included in the medical
information which is subject to the prohibitions and restrictions of
section 411.
We also urge the Agencies to consider providing a safe harbor in the
final rule for creditors who inadvertently used uncoded medical
information. Many creditors rely on automated systems to review and
approve credit applications based on a review of credit reports. We
believe that consumer reporting agencies may fail to code medical
information properly, especially in the early days of implementing the
proposed rule. If consumer reports are not coded properly, creditors
(through their systems) may inadvertently rely on this information.
The Agencies should be allowed to draft regulations that are
enforced by the other Agencies
We believe that the Agencies should have the authority to draft rules
under section 604(g)(5)(A) of the FCRA that apply to creditors that are
outside the scope of the exceptions described in the proposal. Section
604(g)(5)(A) does not limit the persons that may rely on the exceptions
created by any of the Agencies under that provision. Therefore, the
exceptions created by the rules of each Agency can apply to all
creditors unless the Agencies intentionally limit the scope of the
exceptions.
We do not believe that the scope of the exceptions should be limited.
All creditors and consumers should benefit from the exceptions proposed
by each Agency. All of the Agencies should be empowered to create
exceptions that are broadly applied to all creditors. Allowing each
Agency to draft separate exceptions should not create conflicts.
Although coordination among the Agencies on drafting exceptions would be
beneficial, we do not believe that it is not necessary or required.
The FTC would retain enforcement authority despite the lack of
rulemaking power
Section 621(a) of the FCRA provides that the FTC shall enforce the
provisions of the FCRA “with respect to consumer reporting agencies and
all other persons subject thereto, except to the extent that enforcement
of the requirements imposed under this title is specifically committed
to some other governmental agency under subsection (b).” As a result, if
an entity has duties under the FCRA, the entity will be under the FTC’s
enforcement authority, unless specifically covered by another agency
under section 621(b). Sections 604(g)(2) and 604(g)(5)(A) do not limit
the FTC’s general enforcement authority and do not provide an
enforcement structure that differs from sections 621(a) and (b).
Accordingly, the FTC is required by section 621(a) to enforce compliance
with section 604(g)(2) and with regulations providing exceptions to
section 604(g)(2) with respect to any creditors under its jurisdiction.
We believe that there was an oversight by Congress in excluding the
FTC from drafting regulations under section 411 of the FACT Act. We
would encourage Congress to cure this defect by passing legislation that
gives the FTC the appropriate rulemaking authority.
Conclusion
Roundtable member companies appreciate the Agencies’ efforts to draft
the proposed rules for section 411 in an expeditious manner. We
generally support the Agencies’ exceptions to the general rule that a
creditor may not obtain or use medical information in connection with
any determination of a consumer's eligibility, or continued eligibility,
for credit. However, our main concern is that the scope of the
regulations is limited and covers only the entities within the
jurisdiction of the Agencies. We believe that there is statutory
authority to cover all creditors, and failure to do so would adversely
affect non-covered creditors (i.e., finance companies, mortgage brokers,
motor vehicle dealers, and medical providers) and the financial
institutions that rely on those sources for loan originations.
Finally, we believe that an effective date of ninety days after the
final rules are issued is not realistic. We believe that because of the
personnel and systems changes needed to review existing business
practices and comply with these rules, this time period would be
burdensome. We urge the Agencies to consider providing creditors
additional time to implement these regulations.
If you have any further questions or comments on this matter, please
do not hesitate to contact me or John Beccia at (202) 289-4322.
Sincerely,
Richard M. Whiting
Executive Director and General Counsel
Financial Services Roundtable
1001 Pennsylvania Ave., NW
Washington, DC 20004
1 The Financial Services Roundtable represents 100 of the
largest integrated financial services companies providing banking,
insurance, and investment products and services to the American
consumer. Roundtable member companies provide fuel for America's
economic engine accounting directly for $18.3 trillion in managed
assets, $678 billion in revenue, and 2.1 million jobs.
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